Advanced: Sales mix and quantity variances and planning and operating variances Milbao pic make and sell three
Question:
Advanced: Sales mix and quantity variances and planning and operating variances Milbao pic make and sell three types of electronic game for which the following budget/standard information and actual information is available for a four-week period:
Budgeted fixed costs are £2 500000 for the four- week period. Budgeted fixed costs should be chan¬ ged to product units at an overall budgeted average cost unit where it is relevant to do so.
Required:
(a) Calculate the sales volume variance for each model and in total for the four-week period where (i) turnover (ii) contribution and (iii) net profit is used as the variance valuation base. (9 marks)
(b) Discuss the relative merits of each of the valuation bases of the sales volume variance calculated in
(a) above. (6 marks)
(c) Calculate the total sales quantity and sales mix variances for Milbao pic for the four-
week period, using contribution as the valu¬ ation base. (Individual model variances are not required.) (4 marks)
(d) Comment on why the individual model variances for sales mix and sales quantity may provide misleading information to management. (No calculations are required.)
(e) The following additional information is avail¬ able for the four-week period:
1. The actual selling price and variable costs of Milbao pic are 10% and 5% lower respectively, than the original budget/standard.
2. General market prices have fallen by 6% from the original standard. Short-term strategy by Milbao pic accounts for the residual fall in selling price.
3. 3% of the variable cost reduction from the original budget/standard is due to an over-estimation of a wage award, the remainder (i.e. 2%) is due to short-term operational improvements.
(i) Prepare a summary for a four-week period for model ‘Superb’ only, which reconciles original budget contribution with actual contribution where planning and operational variances are taken into consideration. (8 marks)
(ii) Comment on the usefulness to manage¬
ment of planning and operational variance analysis in feedback and feed¬ forward control. (4 marks)
(Total 35 marks) ACCA Paper 9 Information for Control and Decision Making
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